RBNZ plans tighter rules for online payments

The Reserve Bank says it is not threatened by the rise of Bitcoin but it doesn plan to tighten regulation as payments increasingly shift to online and mobile.

Deputy governor Grant Spencer touched on the virtual crypto currency during a speech to the Payments New Zealand conference in Auckland this morning.

"As the currency issuer, the Reserve Bank does not feel threatened by Bitcoin which seems to behave more like a commodity than a currency," he said.

"However, I do not doubt that future digital currencies will become more realistic substitutes for cash."

Just 30 years ago, payments were overwhelmingly made using cash and cheques, Spencer said.

Now the growth areas were online, contactless, and mobile phone apps.

Spencer said a number of new players were also entering the payments market, including telcos and the likes of Apple, Google and Paypal.

"This greater use of technology is making our lives easier but also brings increased operational risk," Spencer said.

The central bank was worried about both the involvement of new players and the potential for cyber-attacks.

Spencer said a balance needed to be found between competition, co-operation and safety.

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"The challenge for [Payments NZ] is to promote efficiency and innovation by allowing wider participation in the system, while at the same time continuing to manage system risks," he said.

Short-term disruptions locally were not of major concern, but wider lapses could disrupt the entire financial system and economy, he said.

Spencer pointed to a failure of inter-bank payments on Anzac Day 2012, and the recent system outage at the Bank of England which caused chaos in property settlements and foreign exchange markets.

He said there were natural commercial incentives for providers to ensure the resilience of their systems. 

The Reserve Bank's current regulatory approach was "low-key", while many of its overseas counterparts had strengthened their regimes in recent years, he said.

"In the international context, the Reserve Bank's regulatory framework in the payments area is at the non-intrusive end of the spectrum."

Designated major companies involved in payments and financial transactions must have their 

rules approved by the bank and the Financial Markets Authority.

However, Spencer said choosing to be designated was voluntary, and the bank had to rely on persuasion and industry engagement.

He outlined four core objectives that the companies followed, and said he would like to see them extended to all systemically important organisations.

"In this regard we believe there is a case for some strengthening of the current regulatory framework."

Spencer said there was also a need for a change in crisis management, with roles and responsibilities needing to be formalised.

The bank was currently looking to establish an "enhanced oversight regime" around the two issues, he said.

The central bank is governed by the Reserve Bank Act, which would need to be amended to grant it new powers.

 - Stuff

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